Premiums and Calls - Rule 20A: Insurance Premium Tax

Rule 20A Insurance Premium Tax

The Member shall indemnify the Association and hold it harmless in respect of any liability, cost or expense incurred or amount paid by the Association in respect of any Insurance Premium Tax for which the Member is liable.

Guidance

(A) The Member shall indemnify the Association...in respect of any Insurance Premium Tax for which the Member is liable. (Rule 20A)A number of countries provide that certain taxes or dues commonly referred to as Insurance Premium Tax (IPT) are payable to their tax authorities in respect of insurance premiums and calls that are payable to the Association as an insurer.1 For example, the domestic legislation of countries that are members of the EU/EEA is based on the Second Council Directive (88/357/EEC) of the EU article 2 (d) of which provides that premiums are payable in the “Member State where the risk is situated”. In the case of vehicles, including ships, this means that the premiums are taxable in the member state where the ship is registered, and that premiums that are payable for risks related to the company are normally taxable in the member state where the policy holder’s head office is established. Therefore, the Member’s liability to pay IPT will normally depend on the type of insurance product and the risks that it covers.

It is the Member that has the primary obligation to pay the IPT and the responsibility to do so in full and in time in compliance with the applicable laws and regulations. The Association’s involvement is limited to the collection of the necessary funds from the Member and the subsequent remittance of those funds to the relevant tax authorities on the Member’s behalf.2 However, in some countries, the Association may be obliged to pay the IPT to the relevant tax authorities even if the Member has failed to pay the IPT in compliance with the applicable laws and regulations, or to provide the Association with the necessary funds to enable them to do so on the Member’s behalf, or even for other non-related reasons.

Rule 20A makes it clear that it is the Member that has the primary responsibility to pay the IPT and that any payment of IPT that the Association may be obliged to make to the relevant tax authorities does not absolve the Member from that primary responsibility, or from the responsibility to indemnify the Association in respect of such payment and any liability, costs or expenses that the Association may incur in so doing. Therefore, Rule 20A reflects the responsibility that the Association has to the Membership as a whole to have the right of recourse against a Member in such circumstances in order to safeguard membership funds. Furthermore, Rules 20.6 and 20.7 provide that any sum debited by the Association to the Member for IPT for which the Member is primarily responsible is to be paid on demand and shall incur interest if not paid on or before the due date.

1 See the Guidance to Rule 1.1 for the definition of Insurance Premium Tax (IPT).2 The IPT is normally collected from the Member by the Association but may in some cases be collected by brokers on behalf of the Association.

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